business plan fca

FCA Business Plan and ‘Dear CEO’ Letter Set Out Updated Priorities for Asset Management and Alternatives Supervision

Greg Norman Abigail B. Reeves Weite (Wendy) Li

In March 2024, the Financial Conduct Authority (FCA) released two documents with its updated supervisory approach for the asset management and alternatives sector: the FCA’s 2024/25 Business Plan (the Business Plan ), and a “ Dear CEO” letter titled “Our Asset Management & Alternatives Supervisory Strategy – interim update” (the Dear CEO Letter).

The Business Plan details the regulatory agenda and strategic priorities for the upcoming year, and the Dear CEO Letter serves as a parallel resource to inform stakeholders of the FCA’s regulatory expectations and focus for the near- to mid-term. A particular focus of both publications is the FCA’s emphasis on accountability in assessing the effectiveness of firms’ governance, as illustrated by a statement in the Dear CEO Letter that the boards and senior managers of firms should take decisive actions to comply with the FCA’s requirements and mitigate any potential risks of harm.

Here we analyse the two documents and highlight areas where asset managers and those in the alternatives sector will want to monitor.

The Business Plan

In the Business Plan, the FCA reaffirms that it will uphold its operative objectives:

(i) protecting consumers;

(ii) ensuring the integrity of the UK financial system;

(iii) promoting effective competition; and

(iv) enhancing the international competitiveness of the UK economy.

In response to the changing external environment, the FCA has recognised three key challenges that it is currently monitoring: higher interest rates and persistent inflation; global financial risks (including the riskier market-based corporate borrowing and high levels of public debt); and geopolitical risks with the potential to cause severe disruption. The FCA expects to release further updates on how it measures performance against metrics in the summer.

To help address these external challenges in the next year, the FCA makes three specific commitments as part of its updated focus: reducing and preventing financial crime, putting consumers’ needs first, and strengthening the UK’s position in global wholesale markets.

In addition to its ongoing activities, the FCA also plans to initiate the following new actions to support the new focus:

• increasing investment in the FCA’s systems to utilise intelligence and data more effectively in targeting higher risk firms and activities;
• carrying out multi-firm work and market studies across various sectors to elevate standards for consumer protection, with a particular emphasis on supporting those in vulnerable circumstances; and
• encouraging innovation and supporting industry efforts towards T+1 settlement to enhance operational efficiency.

The Dear CEO Letter

This Dear CEO Letter serves as an interim update following the series of communications released in August 2022  and February 2023 , which have progressively outlined the FCA’s supervisory strategies for asset management firms primarily engaged in managing or advising on alternative investment products. The Dear CEO Letter was issued in response to changes in the external market environment, especially in light of the heightened uncertainty and several market shocks experienced in the past year. It delineates the FCA’s supervisory priorities, noting that the FCA anticipates a “high volume of significant business and regulatory changes to be implemented in 2024.”

The table below outlines several critical areas that investment managers of private capital businesses should monitor closely.

Other Areas of Focus

• The FCA remains committed to rectifying shortcomings in authorised fund managers’ “assessment of value” governance, bolstering the application of the Consumer Duty, and mitigating operational disruptions that could adversely affect consumers.
• The FCA will continue collaborating with the Bank of England in the System-Wide Exploratory Scenario initiated in June 2023, an initiative that seeks to promote the regulators’ understanding of the behaviours of banks and non-bank financial institutions amidst periods of heightened financial market stress.
• The FCA will implement an upgraded Fund Gateway to facilitate new offshore funds from equivalent jurisdictions to be marketed into the UK, which will replace the Temporary Marketing Permissions Regime established post-Brexit.
• The FCA remains actively involved in providing thought leadership to organizations such as the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB) and endeavours to sustain the UK’s global competitiveness, a goal underscored in its Business Plan.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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FCA Business Plan 2023/24

The Financial Conduct Authority (FCA) Business Plan for 2023/24 follows the structure introduced last year: a shorter summary of priorities and planned activity rather than the more exhaustive list of planned activity now published twice annually in the Regulatory Initiatives Grid.

What are the FCA's strategic themes?

Within the plan itself, there are few real surprises. This is largely because many its initiatives are already familiar and in flight. In that sense, the plan avoids adding materially to the burden of regulatory change already reflected in the Grid.

The plan is organised around the three focus areas first introduced in last year’s edition :

• Focus 1: reducing and preventing serious harm – dealing with problem firms and the harm they cause
• Focus 2: setting and testing higher standards – improving consumer outcomes, imposing ESG standards
• Focus 3: promoting competition and positive change – being globally competitive through high international standards

Under each of these themes, the FCA has described a total of 13 ‘commitments,’ with four of these being ‘headline priorities’.

For each of these commitments, there's an explanation of what the FCA will be seek to achieve and some indication of the steps they will be taking to deliver on each commitment.

One area where the language of last year’s plan has been diluted is in the commitment to have objective outcome measures to evaluate its performance in each focus area. There are still outcomes listed in the plan, but many of these are qualitative or hard to measure.

The funding proposals show the ‘like-for-like’ budget increasing by 9.5% (on top of the 7.3% of last year), and there's a further £50 million in capital spending on systems as part of the FCA’s Transformation programme.

As the FCA’s budget is funded by the fees paid by regulated businesses, the increases are leading to higher fees, although the fee proposals published alongside the Plan show efforts being made to mitigate their impact on certain sectors.

One budget item to note is that Enforcement is to have its own budget to undertake Consumer Duty-related actions from ‘day one’ of the new rules coming into force at the end of July 2023.

The plan also provides an update on the FCA’s regional office strategy, with Leeds becoming the focus for digital and data capabilities. In total the FCA reports its current headcount as 4,500, up from 3,800 in 2022.

Listen to our podcast where we discuss the FCA’s priorities and what it means for businesses

The FCA's 13 commitments

The four headline commitments are areas where additional resources will be allocated and work prioritised ahead of the other commitments.

1 Preparing financial services for the future

2 Reducing and preventing financial crime

3 Putting consumers needs first

4 Strengthening the position of the UK in global wholesale markets

Focus 1: reducing and preventing serious harm

Reducing and preventing financial crime.

There will be an increase in the number of firm-level anti-money laundering (AML) reviews performed as well as greater use of data analytics to try and identify suspicious activity.

Delivering assertive action on market abuse

The Market Surveillance Refresh project is expected to deliver improvements in the FCA’s ability to spot market abuse concerns.

Dealing with problem firms

The plan uses some high-level language about moving harder and faster to tackle problem firms but there is little detail provided. It does suggest that Threshold Conditions will be used more frequently as the basis for banning firms, i.e., rather than poor conduct leading to censure the general ‘unsuitability’ of the firm’s business model or management team will be used to justify action.

Improving the redress framework

There will be a consultation on rule for redress calculations and a review of whether SMEs should be eligible to take cases to the Financial Ombudsman. There will also be proposals for upgraded requirements on complaints reporting.

Reducing harm from firm failure

The only initiative of note here is the planned introduction of a new regulatory capital return which will apply to some 20,000 regulated firms currently subject to limited reporting on their financial resilience.

Improving oversight of Appointed Representatives (AR)

There will be supervisory activity to test compliance with recently introduced rule changes applying to ARs.

Focus 2: setting and testing higher standards

Putting consumer needs first.

The focus here is on implementing the Consumer Duty, critically now described as ‘Consumer Duty and cost of living’, indicating that the Duty is the lever the FCA expects to use to influence outcomes for customers impacted by the cost-of-living crisis. Other initiatives referenced include a review of debt advice rules and a review of rules for handling borrowers in financial difficulty.

Enabling consumers to help themselves

This references the (relatively minor) changes to the financial promotions regime already announced.

A strategy for positive change: our environmental, social and governance (ESG) priorities

Minimising the impact of operational disruptions

There will be more supervisory work with firms on operations resilience arrangements as well as work with the Bank of England and PRA on new rules for oversight of critical third parties.

FCA’s ESG strategy, particularly promoting trust in ESG product marketing and disclosures

This covers the upcoming Sustainability Disclosure Regime for investment funds as well as the expected consultation on broader rules on ESG.

Focus 3: promoting competition and positive change

Preparing financial services for the future.

This covers work to implement the Future Regulatory Framework and also a commitment to develop an improved approach to cost benefit analysis in FCA rules development.

Strengthening the UK’s position in global wholesale markets

Not much mention of reducing the regulatory burden here, the activities described are increased use of technology to oversight UK markets and make it simpler for firms to meet their regulatory reporting obligations.

Shaping digital markets to achieve good outcomes

This will be a slow burn, with follow-ups planned to the discussion papers on big tech and artificial intelligence (AI) as an approach to regulation in these areas evolves.

Finally, one improvement on last year's document is that level of embedded hyperlinks has been reduced, so the plan can be read end-to-end without being forced to chase references to see all relevant content.

For more insight and guidance, get in touch with David Morrey .

Read our related insights, reports and more

FCA Business Plan 2024/25

On 19 March, the FCA published their Business Plan for 2024/25. This will be the final year of the FCA’s three-year strategy to reduce and prevent harm, set and test higher standards, and promote competition and positive change. We share our thoughts on the key topics and themes around:

• Assertive supervisory approach
• Consumer Duty
• Data and technology, including AI.

It is clear from the Business Plan that the FCA will continue to adopt an   assertive supervisory approach. Among other things, it promises to:

• Use its full range of regulatory tools to deal with problem firms and prevent harm
• Take assertive action to tackle fraud and scams. This includes using powers to disrupt, pursue and sanction those committing and enabling financial crime
• Take a robust approach to investigate digital customer journeys and firms using sludge practices
• Strengthen scrutiny and engagement with principals as they appoint appointed representatives and continue assertive supervision of high-risk principals through use of regulatory tools and enforcement action.

As always, PKF is here to help you navigate the FCA regulatory landscape and any challenges you may face. Please contact our team if you’d like to discuss any of the topics and themes in the FCA Business Plan 2024/25.

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Homepage Insights Advice matters magazine The FCA’s Strategy 2022/2025 and Business Plan 2022/23

The FCA’s Strategy 2022/2025 and Business Plan 2022/23

20 May 2022

Isn’t it funny? You wait all year for the FCA’s annual Business Plan (or perhaps not!) and then not only do 2 come along in the space of 9 months  (admittedly the publication of the one for 2021/22 was postponed for 3 months until July due to the on-going Covid-19 pandemic), but also an accompanying three-year Strategy Document. The latter has been fundamentally revisited and revised to include a more holistic and outcomes-focused approach than has ever been seen previously. 

The strategy – fixed and in place for the next three years – is intended inter alia to enable the FCA to assess how well it is performing against its own areas of strategic focus. A closer inspection of the details reveals that the FCA has repackaged its existing commitments rather than introduce a sea-change in terms of a change of focus. The key step change is the degree of accountability and the granularity of the metrics that the FCA will use to measure its progress (source: KPMG).

But there have also been criticisms that the FCA should perhaps first get its house in order before embarking on its odyssey of data-led regulation – especially as its budget appears out of kilter with its appetite for change and ambitious plans for reform. However, procrastination is the thief of time and given the unforeseeable duration of Covid and residual adjustments to working patterns for everyone in the financial services sector, the FCA has perhaps no other choice than to crack on with its plans and reforms.

Business Plan 2022/23 – FCA’s programme of work for the coming year

The worst of Covid has passed (we hope), but in its place, new emerging macroeconomic and geopolitical challenges such as the Russia/Ukraine conflict and further anticipated inflation increases (plus hikes in interest rates, petrol and energy prices etc.) amply fill the void. This is a challenging time for consumers and the market as a whole and the FCA’s Business Plan sets out, perhaps too boldly(?), how the regulator intends to deliver on its proposed three-year strategy regardless of the external pressures.

On the agenda, strategic policy challenges include delivering a regulatory Brexit dividend, becoming a world thought leader on ESG-related matters and moving forward on recently announced Government ambitions for the UK to become the world-leading centre for Fintech innovation, including crypto-assets. Indeed, the rapid expansion of crypto-assets and digitalisation of financial services create opportunities and risks which demand a cautious and considered approach. Against such a complex and challenging agenda, the FCA is seeking to be better placed to continue responding to these challenges and opportunities by focussing on outcomes across all sectors and markets. 

Following on from its 2021/22 Business Plan, the categorisation and definitions of the FCA’s consumer priorities have changed, albeit slightly (see below) with the essence of the priorities defined in the 2022/23 plan following similar themes; “Ensuring consumer credit markets work well” and “making payments safe and accessible” are aligned to the FCA’s commitment in the 2022/23 plan of “ putting consumers’ needs first ”; “Delivering fair value in a digital age” is in line with the commitment of “ shaping digital markets to achieve good outcomes ” and “Enabling effective consumer investment decisions” is in line with the commitment of “ enabling consumers to help themselves ”.

The 2022 / 2025 Strategy? Results, not process

The Strategy Document re-emphasises the directional shift that was introduced within the FCA’s 2021/22 Business Plan, which initiated a move away from detailed plans for each financial services sector, in favour of focusing on the outcomes that the FCA is seeking across all of the sectors that it regulates (source: Latham Watkins). Thereby “improving outcomes for [its] consumers” (The Daily Telegraph, 08.04.2022). In his foreword to the strategy, the FCA Chief Executive Nikhil Rathi said, “we are now focusing on results rather than being driven by processes” and added, as per his introductory message: “prioritisation is inevitable” in line with FCA’s broad and growing remit (Source: Latham Watkins)

The FCA has defined four “consistent top-line themes” that cut across both consumers and wholesale markets. They are as follows:

The FCA’s Strategy Document also introduces three key commitments as its area of focus.

How the FCA intends to deliver on these commitments

In keeping with the FCA’s shift towards an outcomes-based focus through cross-sector responses, its Business Plan includes common regulatory tools and activities to cross each of the above three commitments, which are:

• Authorisation of firms and individuals
• Setting rules and standards
• Supporting competition and innovation
• Empowering consumers and firms
• Recognising and reducing harm
• Taking quick and effective action

Crucial activities over the next 12 months

Strengthening the UK’s Position in Global Wholesale Markets

The FCA wants to develop a metric to measure market participants’ views on its effectiveness in order to maintain the UK’s position as one of the world’s leading financial markets; not only because of its encouragement of innovation and “appropriately evolving” ability to address new opportunities and risks, but also, because its regulatory framework is proportionate in terms of speed and cost. 

The FCA’s activities over the next 12 months will include: 

• enhancing its capacity to approve listed issuers onto UK capital markets and starting the transfer of the regulatory framework from legislation into FCA rules through HM Treasury’s Future Regulatory Framework
• updating the wholesale markets regulatory framework working with Treasury on the review and development of the overseas firms’ regime 
• supporting innovation through a flexible regulatory approach, including the launch of the financial market infrastructure (FMI) sandbox 

Market Abuse

• will set out to improve its perceived effectiveness in promoting market integrity and increase the number of interventions for failure of publicly traded issuers to disclose properly 
• will strive to find the best way to measure market abuse/misconduct enforcement cases and outcomes
• plans to provide guidance through Technical Notes in 2022/23 (which are consulted on through the Primary Markets Bulletin publications)
• plans to deliver the Market Surveillance Refresh project (allowing efficiency improvements in FCA alerting/enquiry analytic tools) and the Markets Data Processor refresh project (delivering market data to the FCA’s alerting and analytic tools)
• intends to increase its detection capability 

Operational Resilience and Disruptions

• The FCA wants to ensure that important business services provided by firms are resilient to operational disruption. During 2022/23, it plans to ensure that the authorisation process takes into consideration how firms subject to the Operational Resilience Policy have ensured they meet the expectations of the policy.
• Plans are under way for the launch of a new oversight regime to test and monitor Operational Resilience. A Discussion Paper is planned with the Bank of England and the PRA on the uses of Critical Third Parties (CTPs) which proposes introduction of resilience standards to be met as well as a testing methodology and enforcement powers of CTPs in the event of a firm’s  failures. Responses to the Discussion Paper later in 2022 will inform the consultation which is expected to take place in 2023.
• From 31 March 2022 to 31 March 2025, the FCA will assess the capability of firms to remain within their impact tolerances so that by 31 March 2025, they can demonstrate that they are meeting these requirements.

The challenges facing FCA’s internal transformation

The FCA has made it clear there needs to be significant investment in its own technology, infrastructure and data analysis to enable it to fulfil its ambition as a data-led regulator. Several its outcome measures depend on the FCA being able to deliver this transformation agenda and also significant investment. The Business Plan sets out four key areas of focus for its internal transformation: 

• Investing in the development of analytical tools, leveraging its new cloud-based data infrastructure and exploring the use of machine learning and AI to identify risks at firms. A data strategy on this to be published later this year
• Streamlining Regulatory decisions to increase the range of cases the executive can decide without referral to the Regulatory Decisions Committee
• Making the FCA more diverse, with a target of 50% of its senior leadership identifying as female and 20% as ethnic minorities by 2025
• Developing a national location strategy with a Leeds office of c.100 staff and a doubling of the Edinburgh office to c.200 staff

The budget set aside for transformation is modest, raising questions on how much can be achieved given such an ambitious programme to become a data-led regulator. The last two years of reports and accounts for the FCA show a spend of about 60% on people and about 13% on technology. The 2022/23 Business Plan sets out a budgetary increase of 7.3% which is only inflationary and does not reflect changes to new FCA responsibilities or changes to national insurance contributions. Equally, there’s no mention this year of the FCA’s 2021/22 commitment to be more aggressive in testing the limits of its powers – which at the time did not seem to give rise to any discernible differences in practice. 

As a further part of ongoing reforms and changes, the FCA plans to bolster its enforcement division (by recruiting some 80 staff) to better police the markets with a focus on “shutting down” the problem firms that do not meet basic regulatory standards and in so doing, crack down on serious fraud in a bid to repair its “bruised reputation” (Telegraph).

What else is on the horizon?

There are three key FCA policy initiatives to watch out for:

Consumer Duty – a feedback statement covering the most recent consultation, along with final rules and guidance are due to be published during July 2022. The FCA expects firms to take steps to implement these over the course of the year and for this process to be completed by April 2023. 

It is important to note that the Consumer Duty is not merely a rehash of the Treating Customers Fairly initiative and it will be more attuned to the digital marketplace.

“Recent Discussion Papers by the CMA ‘Online Choice Architecture’ emphasises the importance of digital architecture in consumer protection and in driving effective competition, as well as highlighting some of the challenges” (source: BDO). 

The Consumer Duty is to be embedded at each stage of the regulatory lifecycle (authorisation, supervision, and enforcement) and will become an “integral part” of the FCA’s regulatory approach. The regulator’s supervisory strategies will be amended to focus initially on the highest priority issues and portfolios and the FCA will continue to participate in the Financial Inclusion Policy Forum, working closely with the Government and other bodies to support consumer access to products and services under its consumer protection and competition objectives.

ESG – this area is developing quickly and outpacing the global regulatory thinking around it. The FCA published its ESG Strategy in November 2021, but there is still much room for development in this space and the FCA is engaged with industry and regulators domestically and internationally. The FCA wants to combat misleading marketing and disclosure around ESG-related products. For consumers, the focus will be on minimising the risks of misleading advertising relating to ‘green’ products. For markets, the focus is on improving the quality and quantity of climate and sustainability-related disclosures and promoting accurate market pricing to help with investor decision-making. The FCA hopes to develop metrics to measure the incidence of misleading marketing in ESG products and thus improve quality/quantity of available information.

Stakeholders have expressed a desire to see more active investor stewardship that positively influences companies’ sustainability strategies. The FCA will work with other regulators and industry leaders to develop indicators for the effectiveness of stewardship. In its Business Plan the FCA states that it intends to “embed consideration of ESG issues in how we authorise firms and individuals,” which seems to expand the ESG integration mind-set into the general authorisation process.

In terms of rules and standards, the FCA plans to continue delivering its thought leadership internationally through, for example, its role as cochair of the IOSCO Sustainable Finance Taskforce and the ongoing work on issuers’ sustainability disclosures. (Source: Latham Watkins).

The FCA will take monitoring and enforcement action “as needed” on how firms manage the impacts, risks, and opportunities arising from ESG issues, including how they ensure customers are treated fairly. The regulator states that it “will develop new interventions, as necessary.” 

Given the previously noted 2022/23 plans for metric development (i.e. disclosure quality/quantity, misleading product marketing and the use of active investor stewardship for positive ESG outcomes), the scope for this intervention will be one of the ways in which the FCA aims to use emerging information.

Brexit – HM Treasury will be expecting the FCA to use its regulatory powers to help create a competitive advantage for the UK (London predominantly) as a global financial centre, whilst maintaining market cleanliness and standards.

Closing Thoughts

Considerable change lies ahead, as set out by HM Treasury in its proposed Future Regulatory Framework that will transfer greater powers to the FCA to set rules and regulate in a way that is tailored to the needs of UK firms, markets, and consumers. The FCA will work with the Treasury to design and deliver the new regulatory framework, which supports all of the regulator’s desired outcomes. The FCA intends to measure its success by how effectively it responds to changes in its remit and accountability arrangements, as well as how it embeds firms facing requirements from legislation into FCA rules.

The FCA acknowledges that it has published its Business Plan 2022/23 at a time when the “external environment is changing rapidly”, referring to the risks associated with the uncertainty around existing low levels of financial resilience, rising costs and the spectre of Covid — all of which is set against a backdrop of rising inflation and interest rates and major geopolitical uncertainty. The impact on consumers and firms is expected to be felt over the coming year and beyond. With this in mind, the FCA emphasises that it will monitor emerging issues and “adapt our plans where necessary.”

The FCA’s desire to be a more innovative, assertive and adaptive regulator and to “continuously improve for the benefit of our stakeholders and, respond swiftly to economic and geopolitical developments” [Nikhil Rathi] follows hard on the heels of Dame Elizabeth Gloster’s deep criticism for regulatory failings in ensuring consumer protection when Neil Woodford’s investment firm hit trouble – swiftly followed by the collapse of London Capital & Finance (LCF) in 2019. In her report (published in December 2021) she stated that the “FCA missed at least 6 red flags”.

Simon Morris – Partner at City Law firm CMS remains optimistic as regards to Nikhil Rathi’s plan to put the FCA firmly on the front foot stating that the UK’s leaving the EU offers the FCA “unprecedented scope to change the day-to-day rules that businesses must follow.” However, the FCA is believed to be in the midst of real crisis over its high staff turnover and staff-revolt over pay reforms which could yet lead to strike action and derail its best-laid plans. We shall see.

Source: Article “The FCA’s Strategy 2022/2025 and Business Plan 2022/23” was written by The ZISHI Cornerstone experts, and published in the Advice Matters Magazine   | 2022 | Vol 03 | Edition 02

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• Takeaways from the FCAs Business Plan

Key takeaways from the FCA's Business Plan for 2023/24

FCA activity shows no sign of slowing down as the regulator revealed its Business Plan for 2023/24.

Building upon the FCA's three-year strategy, the 2023/24 Business Plan represents the 'sophomore' business plan outlining how the overall strategy will be delivered. It sets out the regulator's response to a number of current challenges including the uncertainties arising out of high interest rates, inflation, unemployment, declines in incomes and market volatility. 

The Business Plan for this year has been slightly re-structured to more closely align with the strategic themes and outlines a total of 13 regulatory commitments across three focus areas, which are:

• Reducing and preventing serious harm
• Setting and testing higher standards
• Promoting competition and positive change

The 13 commitments under the 2023/24 Business Plan are set out below, with the first four commitments being of the greatest priority:  

• Preparing financial services for the future 
• Putting consumers’ needs first 
• Reducing and preventing financial crime 
• Strengthening the UK’s position in global wholesale markets
• Dealing with problem firms 
• Improving the redress framework 
• Reducing harm from firm failure 
• Improving oversight of Appointed Representatives 
• Delivering assertive action on market abuse
• Enabling consumers to help themselves 
• Minimising the impact of operational disruptions 
• A strategy for positive change: our environmental, social and governance (ESG) priorities
• Shaping digital markets to achieve good outcomes

This article provides a brief summary on some key takeaways from the regulator's Business Plan for the year to come. 

Consumer Duty

Predictably, the FCA said it remains strongly focused on the Consumer Duty, which is due to come into force on 31 July 2023, specifically for those with live products and services.   The regulator has stressed that increased consumer protection and the Consumer Duty will represent a significant shift for regulated firms. The Duty imposes more stringent standards for consumer protection and will become an integral part of the regulator's approach and mindset in years to come.

The FCA will invest £5.3 million to ensure the Consumer Duty is successfully embedded and intends to steadily increase its headcount to accompany the transition.  Key information was provided about the metrics and KPIs that will be used from sources such as levels and root causes of Financial Ombudsman Service (FOS) complaints, to form a view as to whether firms are meeting the requirements under the Consumer Duty in the two outcomes relating to Consumer Understanding and Consumer Support. 

The FCA is also focused on improving the redress framework and is developing proposals to improve complaints reporting. The regulator will be consulting on guidance for firms regarding redress calculations and is currently consulting on access to the FOS  for small and medium enterprises that may have insufficient resources to resolve disputes through the legal system. 

Oversight of Appointed Representatives ("AR")

The FCA is set to continue with its action to tighten supervision in the principal/AR space. The Business Plan confirms that there will be further engagement and scrutiny in this area from a regulatory perspective. The FCA criticised Principals for not adequately overseeing their ARs' activities, thereby putting consumers at an increased risk of being misled. Principals will have to become familiar with the FCA's new rules and guidance to ensure compliance and minimise the risks associated with their ARs' possible mis-selling to consumers.  Reporting for principal firms under the new rules becomes fully effective later this year.  

Financial Crime & Market Abuse 

Consistent with previous year, the FCA has stated its intention to further its work in the prevention of regulated firm's being used to facilitate financial crime and it is developing metrics in this area to test the effectiveness of its strategy. 

Further, the FCA continues to actively target entities who become involved in Market Abuse practices to tackle the detrimental effect these have on market confidence and participation. 

The regulator is pinning its strategy on better education for its regulated entities to foster prevention and compliance. In parallel, the regulator is working to improve its detection and prosecution capabilities to detect market manipulation and abuse through increased data capture, improved analytics and a dedicated "equity manipulation team". 

Persons Discharging Management Responsibility (PDMR) will also be expected to provide additional transparency and engagement in respect of detecting potential insider dealing. 

The FCA is building a regulatory framework to support its ambition to foster a UK net-zero financial centre. The regulator intends to tighten its grip on mis-leading marketing and disclosure around ESG related product and "greenwashing" to protect consumers and promote trust in the market for ESG investment products. 

The FCA will further collaborate with key stakeholders in the ESG sphere through its ESG Advisory Committee to the Board, which it established in December 2022, to execute its ESG responsibilities. The regulator will also finalise and publish its rules on Sustainability Disclosure Requirements and investment labels. 

Data and Technology 

The FCA will increasingly rely on Data and Technology-led regulation programmes this year to improve their intelligence capabilities through automation of analytics tooling, detection of crime and faster responses to consumer harms. The regulator has also invested in cyber security and operational resilience to improve efficiency of its staff and regulated firms. 

We can expect that the FCA will continue to promote innovation and that reporting expected by firms will become more sophisticated, to improve their existing detection capabilities and promote speed and efficiency of supervision and intervention. 

Financial Regulatory Framework 

Finally, the FCA expects to invest £12.7 million in 2023/24 to support its "Preparing financial services for the future" strategic commitment. This forms part of the post-Brexit Future Regulatory Framework (FRF), which will transfer even more responsibilities to the FCA and will reinforce accountability, scrutiny and transparency for regulated entities. 

General Observations 

The Business Plan as pledged to further work that has been ongoing for a number of years in respect of the Financial Promotions Gateway, ensuring the ongoing resilience of firms from both a financial and operational perspective and how it will continued to share intelligence with other agencies to advance its operational objectives. Closer scrutiny of how firms meet the Threshold Conditions was also widely restated across the business plan, with the FCA planning to challenge firms at each stage of their lifecycle, starting from new firm authorisations.  

The FCA's activity is showing no signs of slowdown. To the contrary, during 2022 the FCA issued over 1,800 warnings about potential scam firms, which is 400 more warnings than the previous year. The regulator's headcount has also grown from 3,800 in early 2022 to almost 4,500 at the end of March 2023. Numbers are expected to grow again for the years 2023/24.  DWF have a depth of expert insight on regulatory natters across a range of regulatory topics and would be pleased to discuss with you what the business plan means of your firm and how it should be integrated into your business and compliance strategy this year.  

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Overview: The FCA Business Plan 2023/24

• Overview: The FCA Business Plan…

As an investment professional, you will no doubt have heard about the Financial Conduct Authority’s annual business plan. Published today (5 April 2023), the plan for the coming year outlines the conduct regulator’s objectives and budgets.

In this short post, you will gain an overview of the FCA Business Plan 2023/24 and insights into the broader content of the publication.

What is the FCA Business Plan?

The Financial Conduct Authority (FCA) shares their business plan each April – usually on the last day of the financial year, in readiness for the start of the next. It outlines the work they intend to do in the following 12 months to support and deliver on the commitments put forward in another FCA publication, ‘ Our Strategy 2022 to 2025 ’.

Produced for the first time in 2022, the FCAs three-year strategy set out the three key focus areas for the coming three years, and thirteen commitments to support them. The three focus areas or ‘themes’ were:

• reducing and preventing serious harm
• setting and testing higher standards
• promoting competition and positive change

The activity and outcomes discussed in the Business Plan are largely focussed on achieving (or working toward achieving) these aims.

“With consumers across the UK struggling with the cost of living and market events causing concern, we’ve put vital changes in place, meaning we’re better set up to face these challenges.” Nikhil Rathi, Chief Executive – FCA

What does the FCA Business Plan cover?

As in previous years, the FCA Business Plan 2023/24 outlines their overall objectives, challenges for the year ahead, focus for 2023/24, plans to deliver on commitments, and budget.

The FCA’s objectives for the next 12-months include:

• securing an appropriate degree of protection for consumers.
• protecting and enhancing the integrity of the UK’s financial system.
• promoting effective competition in the interests of consumers.

The challenges anticipated by the FCA in 2023/24 are:

• their ‘key uncertainties’ which include interest rates and inflation, the risk of unemployment increasing beyond existing projections, the possibility of further declines in disposable income for UK households, and the potential for additional market volatility.
• Wholesale markets
• Cost of living and Consumer Duty

The FCA’s plans for delivering on their commitments in the coming year includes work already started. This is a focus on achieving their aims within those three key areas or ‘themes’.

The first, ‘reducing and preventing serious harm’, includes:

• dealing with problem firms.
• improving the redress framework.
• improving oversight of appointed representatives.
• reducing and preventing financial crime.
• delivering assertive action on market abuse.

Focus two, ‘setting and testing higher standards’, covers:

• putting consumer needs first.
• enabling consumers to help themselves.
• a strategy for positive change – environmental, social, and governance (ESG) priorities.
• minimising the impact of operational disruptions.

Finally, the third focus area, ‘promoting competition and positive change’, discusses:

• preparing financial services for the future.
• strengthening the UK’s position in global wholesale markets.
• shaping digital markets to achieve good outcomes.

The publication closes with a look at the FCA budget for 2023/24, detailing the resources they anticipate needing to carry out planned work for the year. This is comprised of:

• the cost of ongoing regulatory activity (ORA) – core operating activities and staffing.
• their Annual Funding Requirement (AFR) – the total revenue to be generated from the financial industry through things like fees, levies, and financial penalties to fund ORA.
• capital expenditure to develop information and technology systems as well as new operational and regulatory requirements.

“The scale of the FCA ambition to become a data-led regulator means that we are making significant progress across a number of data and digital programmes. These include exploiting our investment in cloud technology, implementing new digital capabilities, and designing new data solutions required by the front line of the business.” Business Plan 2023/24 via fca.org.uk  

You can get more detail on the FCA budget from their annual fees rates consultation paper, the most recent iteration of which was published 5 th April 2023 and titled ‘ CP23/7: Regulatory fees and levies: policy proposals for 2023/24 ’.

What’s next?

You can read the FCA’s 2023/24 Business Plan in full on their website today, by following this link .

Later in the year, the regulator will publish their Annual Report. This will communicate the progress made against the activities and outcomes set out in the FCA Business Plan 2023/24.

Author: Holly Helps, Marketing Manager

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• FCA Business Plan 2021/22

New approach, expanding priorities.

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The FCA’s Business Plan continues to be heavily outcomes-focused and there is less sector-specific detail, revealing a conscious change of approach. It notes that the digitalisation of financial services brings profound changes in the way consumers make decisions and global markets operate, that the transition to a net zero economy will require an entirely different approach to markets and investment products, and that persistently low interest rates may lead to consumers taking excessive financial risk or broader systemic risks in wholesale markets.

The plan continues the theme that the current regulatory framework is overly focused on rules and process, and not enough on principles and outcomes. This sentiment is echoed by the addition of Consumer Duty to its existing four consumer priorities. The FCA sees too many resources devoted to redress and remediation, and not enough to empowering consumers to take good decisions and regulatory action to prevent harm and safeguard consumers’ financial wellbeing. We see this driving principle featuring prominently as the FCA continues its transformation programme.

In wholesale markets, the FCA continues its focus on market integrity with the LIBOR transition and prevention of market abuse and financial crime. With more freedom post-Brexit for the UK to tailor rules in the wholesale markets, there is a new focus on effectiveness in primary and secondary markets. In investment management and pensions, the FCA wants fair value and products that meet investors’ needs. It continues to work with the Bank of England and international bodies on the framework to manage liquidity in open ended funds, including money market funds. The FCA also wants improved oversight by principal (regulated) firms over their appointed representatives (ARs).

Unsurprisingly, the priorities across all markets include fraud, financial resilience and resolution, and operational resilience. New and significant entries are diversity and inclusion (within both the FCA and regulated firms) and environmental, social and governance (ESG) issues. The FCA’s international aims have shifted away from Brexit – other than ensuring firms exit smoothly from transitional arrangements – to global standard-setting, open markets and effective cross-border supervision. 

To ensure firms start with high standards and maintain them, the FCA will more intensively assess and scrutinise applicants’ financials and business models, but the application process will be more straightforward. It will also increase its oversight of newly authorised firms (a regulatory “nursery”) and of firms that are growing significantly.

The plan describes how the FCA’s role will change as it develops towards “a more innovative, assertive and adaptive approach”. Whilst these are laudable aims, it will represent a significant challenge for the FCA as it juggles a raft of other regulatory challenges. However, despite this, the FCA has also made a commitment to be more accountable with a promise to report on its progress against metrics to be determined.  

The FCA’s budget will increase by 4%, with the costs of ongoing regulatory activity (ORA) up 4.9%. The FCA appears to have removed its freeze on the fees paid by the smallest firms – a concession that had been in place for the last two years. This is a signal that the FCA is seeking to transition out of its pandemic measures, where appropriate. 

Highlights featured in this update:

Consumer priorities, wholesale markets priorities, cross-cutting priorities, transforming how the fca works and regulates.

Whilst the FCA continues the focus on its four strategic priorities from last year’s Business Plan, it acknowledges that the shape and scope of some of these priorities have changed to reflect changes in consumers’ finances and behaviour. Further, it has added the Consumer Duty initiative as a fifth priority, underlining the intended regulatory impact of the new duty, which is a “raising of the bar” in the treatment of customers. For further details, see KPMG’s paper on the potential impact of the new Consumer Duty.

1)    Enabling consumers to make effective financial decisions

The FCA has broadened out this priority to all consumers (last year it was limited to just investment consumers). However, the outcomes the FCA seeks have not fundamentally changed.

The FCA has made some progress, such as in looking to strengthen financial promotion rules and awareness of ScamSmart. The FCA’s next near-term priorities are:  

• Publishing shortly its Consumer Investments Strategy (which will include how the FCA tackles firms and individuals who cause consumer harm) and a second data report, detailing the FCA’s work to protect consumers
• Creating a “consumer investment coordination group” with the FSCS, the FOS and the Money and Pension Service (MaPS), to gather information on sharp practices and so better target interventions
• Beginning a review of aspects of the rules on the scope and coverage of FSCS compensation

2)    Ensuring consumer credit markets work well The underlying outcomes for this priority are unaltered. In order to achieve these outcomes, the FCA will focus on :

• How firms are providing tailored support to borrowers in financial difficulty
• Reviewing its approach to the debt advice rules to help over-indebted consumers get high-quality advice
• Bringing “Deferred Payment Credit” into its regulatory remit
• Considering possible future changes in credit information markets where consumers can choose to use credit information to make better-informed decisions

3)    Making payments safe and accessible

The FCA has extended both the scope and remit of this priority, placing greater emphasis on consumer protection by ensuring access to payments services and the payments market being competitive and innovative – especially for smaller businesses. The FCA will:

• Focus supervisory activity on ensuring payment services and e-money firms are financially robust and customers understand FCSC coverage 
• Seek to continue to protect access to cash – particularly for consumers in vulnerable circumstances
• Work with HMT to develop policy and recommendations on payments, e-money and crypto-assets

4)    Delivering fair value in a digital age 

The underlying outcomes for this priority are unaltered and much of the FCA’s activity will be a continuation of existing work. However, as it builds its digital markets strategy, it will develop a framework to identify and assess potential harms and benefits arising from the increasing digitalisation of financial services markets. In the meantime, the FCA will focus on:

• Assessing the implementation of the GI pricing practices requirements (January 2022) by using firms’ reporting data to measure success, track market changes and identify firms that continue to engage in price walking
• Continuing to assess the impact that digitalisation can have on competition to help ensure that digital financial services markets operate effectively to generate good customer outcome
• Investigating practices, such as “sludge practices”, which make it difficult for consumers to cancel a product or service online

5)    Consumer Duty

This is a new priority driven from the FCA’s recent consultation on a New Consumer Duty, which signals a “paradigm shift in its expectations” of firms. Therefore, the impact of this publication cannot be under-estimated in terms of its regulatory intentions. The outcomes the FCA is seeking to achieve are that:

• Communications equip consumers to make effective, timely and properly informed decisions
• Products and services are specifically designed to meet consumers’ needs and sold to those whose needs they meet
• Customer service meets the needs of consumers, enabling them to get the benefits of products and services and act in their interests without unnecessary barriers
• The price of products and services represents fair value for consumers

The consultation closes on 31 July 2021 and the FCA will set the proposed new rules or guidance in a subsequent consultation at the end of 2021, with a view to finalising and introducing any new rules before end-July 2022. 

The FCA’s focus in relation to wholesale markets is widening from market integrity to also include market effectiveness and efficiency. The FCA highlights the ”gamefication’ of finance due to the digital access consumers now have to wholesale markets. Given that retail consumers do not have the same protections when accessing wholesale markets directly, it is important that wholesale firms must meet conduct obligations around conflicts of interest, price manipulation and information. 

1) Review of rules in primary and secondary markets

The rules framework supports the needs of investors and companies seeking to raise finance and manage risks through capital markets.

The focus is on improving the effectiveness of the markets. The FCA is consulting on amendments to the Listing rules, including recommendations for the Lord Hill’s UK Listing Review Report , and the proposed rules around special purpose acquisition vehicles (SPACs). The FCA is proposing to extend climate-related financial disclosures from premium listed companies to standard listed companies. In the secondary markets, the FCA is working with HM Treasury to simplify and improve the effectiveness of the on-shored MiFID II/ MIFIR regimes. 

2) LIBOR Transition

Firms and markets complete an orderly transition away from LIBOR to alternative risk-free rates, with customers treated fairly throughout this transition.

With the cessation of non-USD LIBOR at end-2021, the FCA will focus on using its powers to support an orderly transition (i.e. finalising the framework around the use of synthetic LIBOR). Firms should also expect increased monitoring of their transition plans by both the FCA and the PRA. 

3) Market abuse and financial crime

Firms effective in preventing market abuse and reducing the risks of financial crime

No new initiatives are announced, but the FCA will seek to measure the impact of its work in this area.

4) Asset management and non-bank finance

Firms to offer investors products that are fair value, meet their investment needs and offer an appropriate level of protection; marketing and disclosures to be fair, clear and not misleading 

Asset managers should manage liquidity in funds to avoid unnecessary risks to investors and market integrity

Enable investment in less liquid assets for those with a long-term investment view who can cope with the risk of these investments

The FCA will continue to focus on how asset managers ensure value for consumers, increase its supervisory focus on whether disclosures on ESG properties of funds are fair, clear and not misleading, and continue to seek to identify funds that are outliers to their peers (e.g. due to high fees). It will follow up the findings in its June report on governance weaknesses in host Authorised Fund Managers and its work with the Bank of England on liquidity management in open-ended funds and reform of money market funds. It will introduce the new “LTAF” structure, designed to accommodate relatively illiquid assets, and will decide whether to proceed with requirements for notice periods for open-ended property funds.

5) Pension products

Pension providers offer good value products, and consumers use guidance and support to help them make effective choices.

The FCA will be working with the Pensions Regulator (TPR) on reviewing how to best drive value for money in pensions. The FCA wants pension providers to offer good value products and consumers to be able to make effective choices. The FCA will also be consulting on changes for non-workplace pension providers to help ensure consumers are offered an appropriate default solution where they need it.

6) Appointed Representatives regime

Principals and ARs that are competent, financially stable and ensure fair outcomes for consumers when selling products or giving advice.

The FCA is concerned that the oversight of principal firms (which have regulatory permissions) over their appointed representatives (ARs) is not strong enough and leading to unfair outcomes for consumers. The FCA will increase its supervision in this area and consult on cross-sector changes to improve and strengthen elements of the AR regime – this may include fundamental legislative change.

The FCA notes that the seven priorities in the Plan that are across all markets are not exhaustive. It points readers to the Regulatory Initiatives Grid for more information.

1)    Fraud

The FCA’s focus will be on:

• keeping fraudsters out of financial services at the gateway
• stopping regulated firms from facilitating fraud
• detecting and pursuing FCA-supervised and improperly unauthorised/ unapproved fraudsters
• informing and empowering the public to protect themselves

It will conduct proactive surveillance and monitoring, use effective triage to prioritise, disrupt the work of fraudsters and identify the right intervention, remove FCA-supervised fraudsters from the financial system, and work closely with anti-fraud partners to maximise the collective fight against fraud. 

2)    Financial resilience and resolution

• Firms to have appropriate capital, liquidity and reserves to cover outstanding redress liabilities, so they do not fail in a disorderly manner
• Firms to hold financial resources proportionate to the potential harm caused if they do fail, reducing the level of FSCS pay-outs over time
• Scale of compensation liabilities to stabilise in the medium-term and reduce longer-term as firms hold more capital and liquidity, and fewer cause misconduct that requires them to pay redress on a large scale

The FCA will support firms as they adapt to the new Investment Firms Prudential Regime (IFPR), strengthen its data-driven monitoring of the financial resilience of solo-regulated firms, target interventions at firms with weak financial resilience and those that are likely to cause material harm if they fail, continue work to automate and combine financial resilience data with other data on firms, review aspects of the compensation framework to ensure it remains appropriate and proportionate, and tackle the root causes of harm that create compensation liabilities.

3)    Operational resilience

Firms should be operationally resilient against multiple forms of disruption to minimise the harm caused to consumers and markets. Over time, the FCA would expect to see a reduction in the number, type, duration of incidents and the level of harm they cause. The FCA will assess firms’ progress in implementing its 2021 Policy Statement. From April 2022, it will assess how able firms are to remain within their impact tolerances.

4)    Diversity and inclusion

The FCA wants to improve its own diversity and inclusion so it has an inclusive working environment with diverse teams who are confident to share their experience and opinions, its people reflect the society it serves, and regulation supports improved outcomes for different groups in the population. For firms are:

• Regulated firms and listed companies have more diverse representation at all levels
• Regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds
• Firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way

To support these three outcomes, the FCA expects to see better data collection by regulated firms. It will develop how it measures progress against these outcomes to ensure a consistent approach across financial services.

5)    Environment, social and governance (ESG)

• High-quality climate- and sustainability-related disclosures to support accurate market pricing, helping consumers choose sustainable investments and drive fair value
• Promote trust and protect consumers from mis-leading marketing and disclosure around ESG-related products
• Regulated firms have governance arrangements for more complete and careful consideration of material ESG risks and opportunities
• Active investor stewardship that positively influences companies’ sustainability strategies, supporting a market-led transition to a more sustainable future
• Promote integrity in the market for ESG-labelled securities, supported by the growth of effective service providers – including providers of ESG data, ratings, assurance and verification service
• Innovation in sustainable finance, making use of technology to bring about change and overcome industry-wide challenges

The FCA will:

• Continue its “world-leading” work on TCFD-aligned disclosures for listed companies and asset managers/owners
• Work to address concerns about greenwashing
• Promote standardisation of wider ESG-related disclosures
• Collaborate domestically with the government and industry
• Monitor the exercise of investor stewardship by institutional investors
• Gather market intelligence to gauge how well firms are supported by service providers (such as ESG rating providers)
• Encourage innovation in sustainable finance
• Enhance its role as a facilitator of sustainability in financial markets and firms by acting as a convener, agent of change and role model

6)    International

The FCA says it is committed to robust international standards, strong relationships with authorities around the globe and effective supervision of cross-border financial services. It will be an active member of international standard-setting bodies, participate in the IMF’s 2021 review of the UK, ensure smooth operation of the Temporary Permission Regime and engage with firms to ensure orderly exits from Brexit transitional arrangements.

7)    Market access, equivalence and trade negotiations

• Future trade relationships that support open markets in a way that respects and promotes our objectives and ensures regulatory and supervisory autonomy
• A domestic market access regime that addresses regulatory and supervisory risks from cross-border access, operates effectively post EU-withdrawal and recognises the benefits of open markets

The FCA will provide technical advice to trade negotiations and engage with HMT on its work on the UK’s overseas framework.

Nikhil Rathi, Chief Executive says, “We operate in a world of rapid and disruptive change. To be an effective regulator, we can’t just respond to today’s challenges. We need to prepare for those of tomorrow.” The Plan says that the FCA will be:

• More innovative – taking advantage of data and technology to increase its ability to act decisively in the interests of consumers
• More assertive – testing the limits of its powers and engaging with partners to make sure they bring their powers to bear
• More adaptive – constantly learning and always adjusting its approach as consumer choices, markets, services and products evolve

It expects its approach and delivery of work to exhibit six traits: purposeful, professional, partnering, proactive, pace and pride. The plan does not provide explicit feedback against the four outcomes the FCA set itself last year, but it has set out its first strategic overarching outcomes and metrics to align with its transformation programme:

• Setting the bar high to support sustainable innovation for consumers: publish the aggregate amount by which consumers benefit from its policy work to improve market outcomes.
• Setting the bar high to support market integrity in wholesale markets: continue to monitor, and expect improvements in, its suite of market cleanliness statistics
• Ensuring firms start with high standards and maintain them: monitor. refusal/withdrawal/rejection rates (expected to increase initially) and complaints about newly authorised firms (expected to reduce).
• Using new approaches to find issues and harm faster: monitor the value and volume of FSCS claims.
• Tackling misconduct to maintain trust and integrity: expect an initial increase as firms’ permissions are removed.
• Enabling consumers to make informed financial decisions: expect a reduced number and proportion of calls to the FCA that need to be directed elsewhere and increased effectiveness of its ScamSmart campaigns.
• Diversity and inclusion across the industry: monitor and set targets for itself and drive stronger outcomes across the industry.

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FCA Business Plan 2021 - 2022

23 July 2021

The FCA has published its Business Plan 2021/22 setting out key priorities and a bold vision of its approach to regulating the financial services industry. This should not be a surprise. The FCA has been sending out more than a few indicators that it will not be business as usual. Last year, the FCA had to issue a streamlined version of its Business Plan, owing to the pandemic. This saw many initiatives delayed and implementation timelines pushed back. This Business Plan is the first plan under new CEO, Nikhil Rathi, and follows a number of other changes to the leadership structure, notably the appointment of Sheldon Mills as Executive Director, consumers and competition.

Alongside the Business Plan, the FCA published a speech by Nikhil Rathi, which sets out key concerns for the FCA and provides an overview of the chief aims of the Business Plan. The FCA considers the following challenges are shaping financial services: the rise in vulnerability coming out of the pandemic; rapid technological change; rewriting the UK regulatory framework after Brexit; and transition to a net zero economy. The Business Plan contains FCA priorities for consumer markets, wholesale markets and cross-market issues. The FCA also sets out plans for a new accountability framework for the FCA, containing specific outcomes and metrics for measuring the FCA's progress.

FCA sets out its aims to be:

• more innovative – taking advantage of data and technology to increase its ability to act decisively in the interests of consumers;
• more assertive – testing the limits of its powers and engaging with partners to make sure they bring their powers to bear; and
• more adaptive – constantly learning and always adjusting its approach as consumer choices, markets, services and products evolve.

Accountability

The FCA plans to set goals and report publicly on progress towards achieving them, starting from April 2022. It hopes to have in place a framework that differentiates between:

• consistent top line outcomes and metrics (these stay the same and allow the FCA to deliver its statutory objectives); and
• strategic overarching outcomes and metrics (these are to be set over a multi-year period and reviewed each year).

The FCA's strategic outcomes include the following:

• setting the bar high to support sustainable innovation for consumers;
• setting the bar high to support market integrity in wholesale markets;
• ensuring firms start with high standards and maintain them;
• using new approaches to find issues and harm faster;
• tackling misconduct to maintain trust and integrity;
• enabling consumers to make informed financial decisions; and
• diversity and inclusion across the industry.

In consumer markets, priorities include:

• strengthening rules on financial promotions to protect consumers in relation to investments;
• continuing to improve standards of pension advice;
• making payments safe and accessible;
• delivering fair value in a digital age; and
• progressing proposals for a new Consumer Duty to raise standards in firms’ treatment of consumers.

These priorities are very similar to priorities that the FCA set out in last year's Business Plan, but the FCA states that the shape and scope of some of these priorities have changed to reflect changes in consumers’ finances and behaviour.

In wholesale markets, priorities includes:

• following the UK’s exit from the EU, continuing to develop plans to make primary and secondary markets work better while maintaining high standards; and
• continuing to support the smooth transition away from sterling LIBOR to alternative risk-free rates.

 The FCA also sets out the most important cross-market issues: fraud; financial resilience; operational resilience; improving diversity and inclusion; enabling a more sustainable financial future; and international cooperation.

FCA Approach

The FCA outlines plans to become more effective, faster and more targeted and sets out information on specific initiatives in this regard:

• a systematic review of wholesale regulatory regimes to ensure they align with the needs of the UK market and are at least equivalent to those in the EU; 
• introducing a more robust gateway for new firms consisting of higher standards and greater scrutiny of firms' financials and business models;
• stronger oversight for newly authorised firms (a regulatory "nursery"); and
• stronger oversight of firms via a new Regulatory Scalebox, as recommended in the Kalifa Review.

Market access, equivalence and trade negotiations

The FCA will advise the Government in relation to cross-border access for financial services. The outcomes it is seeking include:

• future trade relationships that support open markets in a way that respects and promotes the FCA's objectives and ensures regulatory and supervisory autonomy; and
• a domestic market access regime that addresses regulatory and supervisory risks from cross-border access, operates effectively post-Brexit and recognises benefits of open markets.

The FCA expects to:

• provide technical advice on Free Trade Agreement negotiations and on negotiations for a Mutual Recognition Agreement on financial services with Switzerland; and
•  continue to engage with the Treasury on the Financial Services Act and on its Call for Evidence on the UK’s overseas framework.

Diversity and inclusion

The FCA recently published a discussion paper on diversity and inclusion (see our briefing here ). In the Business Plan, the FCA reiterates its vision that:

• regulated firms and listed companies have more diverse representation at all levels;
• regulated firms and listed companies foster cultures that are inclusive so that staff can share their diverse experiences and backgrounds; and
• firms design and deliver products that reflect the diverse needs of consumers, offer fair value and are delivered in a fair and accessible way.

Enabling consumers to make informed financial decisions

The FCA sets out a range of outcomes it would like to achieve in this regard and also sets out initiatives such as:

• a three year Consumer Investments Strategy (this will include how FCA deals with firms and individuals causing consumer harm) and a second data report, detailing FCA work on protecting consumers from investment harm;
• consulting on rules for high-risk investments and authorised firms that approve financial promotions (see our briefing here ); and
• continuing to work closely with HM Treasury on changes to the regulatory framework for firms approving financial promotions (see our briefing here ) and consulting on any relevant Handbook changes.

Consumer duty

The Business Plan also sees the FCA set out next steps in relation to a proposed Consumer Duty (see our briefing here ). The FCA confirms it will issue a consultation paper and expects to finalise and introduce any new rules before the end of July 2022. The Business Plan sets out outcomes the FCA wants to achieve in this area:

• communications that equip consumers to make effective, timely and properly informed decisions about financial products and services;
• products and services that are specifically designed to meet consumers’ needs and sold to those whose needs they meet;
• customer service that meets the needs of consumers, enabling them to get the benefits of products and services and act in their interests without unnecessary barriers; and
• the price of products and services represents fair value for consumers.

Authors: Bradley Rice and Bisola Williams

The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.

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Our Business Plan 2020/21

Our annual Business Plan gives details of the key priorities and the planned specific activities for the next year.

Read our Business Plan 2020/21 (PDF)

Our Business Plan sets out our main areas of focus for 2020/21. It outlines our priorities and describes our response to the problems we have identified.

Coronavirus (Covid-19) is profoundly affecting the financial lives of consumers and the workings of markets. Organisations, including us, are facing a huge challenge as we support our employees while also ensuring that the interests of customers, stakeholders and the wider public are protected.

We have delayed other activity we had planned, where we judge that it was not urgent and may have distracted firms from the immediate priority. This has made planning for the year ahead much harder.

We have set out in the Business Plan the priority areas on which we will work over the next 1 to 3 years, as well as other cross-cutting and sector work. Where we can progress this work now, without undermining the focus on the coronavirus response, we will do so. But we recognise that it may be weeks or months before we are in a more stable position and can turn ourselves fully to the activities in this plan.

We also explain how we plan to transform our own approach and capabilities. We will use data and advanced analytics to become a more responsive regulator and ensure the regulatory burden on firms remains proportionate.

Our key priorities and planned activities are set out under our 5 overall priorities, our 6 cross-cutting priorities and the 4 sector-specific area we will aim to focus on.

Video: Christopher Woolard on our Business Plan (2 minutes 47 seconds)

In our business plan.

• Joint message from Chair & Interim Chief Executive
• Coronavirus (Covid-19)
• Our 5 key priorities over the next 1-3 years Transforming how we work and regulate Enabling effective consumer investment decisions Ensuring consumer credit markets work well Making payments safe and accessible Delivering fair value in a digital age
• Cross cutting work
• Sector work

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FCA Business Plan – Practical Actions for Compliance Officers

Published on:.

• 2 August, 2024

The FCA’s Business Plan is a must read for all compliance professionals in the UK.

In this article, ben mason considers emerging themes, what the business plan means for compliance teams and, most importantly, concludes with some concrete suggestions as to what you should do about it., what is in the business plan and are there any surprises.

For those that routinely review such documents, it will not be a surprise that consumer protection, market integrity and financial crime all feature heavily. ESG features, and surprisingly a lesser amount of focus on Diversity and Inclusion than last year, with the FCA’s internal D&I efforts not being commented on here. Predictably, Appointed Representatives, crypto and BNPL all get an airing – the latter two being issues which generate a lot of noise for the small number of regulated firms they impact. And, personally, I find it very helpful when the FCA quantify increases in their activity, such as the number of scams they have intervened in or the number of financial promotions they have asked firms to withdraw.

From the perspective of readers who are compliance professionals looking to manage regulatory risk, there were two primary points of new or evolving interest that I believe are material for all compliance teams to consider. The first is the increasing focus on being ‘data-led’. The second is the FCA’s new-found ability to recast the threshold conditions. 

Firstly, being data-led. The word ‘data’ was mentioned 28 times in last year’s Business Plan and 46 times this year. If you think that is a slightly crude metric, please consider this: the FCA’s new Leeds office is there to focus on ‘enhancing our digital and data capabilities’. With 200 staff based there, that is a massive upgrade on existing resources. Those staff are there for a reason and I think firms should take this seriously. There are actions that need to be taken to work out what this means for you, and I return to this later. 

Secondly, threshold conditions (TCs). The TCs are ambiguous and the FCA can use them to take the strongest action against regulated firms when it wants to. The Business Plan says the FCA will ‘expand the types of breaches of Threshold Conditions that we take action against.’  I take this to mean that they will broaden how they interpret the TCs, at will. This is putting a marker down that they have identified an opportunity to strengthen their powers of intervention using the TCs. 

Moving on, I should acknowledge there is a lot about the competitiveness of the UK’s wholesale markets.  Firms operating in wholesale markets will already be aware of the significant changes coming their way, as the UK looks to strengthen its position post Brexit. These changes are listed in the Business Plan and are far reaching for some compliance teams.

A final comment is that the FCA’s 8.5% increased annual funding requirement starkly contrasts with the PRA’s 3% decrease. While the reasons are all explained, firms already hit with new regulatory fees, such as the Economic Crime Levy, may have some emotive feelings about that. 

What is the context in which this Business Plan has been produced?

The FCA always has a lot going on. It has recruited 700 new staff, on top of staff turnover. It has experienced significant regional expansion (more people in regional offices across the country). As often happens, some changes in the perimeter will impact the FCA’s supervision and authorisation teams. 

The ongoing political challenge for regulators is the stark contradiction of politicians wanting lighter regulation while also heavily criticising any perceived regulatory failure. Brexit and the Future Regulatory Framework also give a colourful backdrop.

From a regulatory strategy perspective, compliance teams should read the Business Plan in the context of the other swathe of regulatory policy and strategy documents. This includes the FCA’s 3 year Strategy, the Regulatory Initiatives Matrix, the Commitments and Objectives, the Metrics and the Perimeter Report, along with all the normal supervisory activity we are all familiar with: enforcement action, Dear CEO letters, policy updates and so on. Ideally, it should feel that these all align, you can relate them to the risk that you already prioritise and you therefore experience no supervisory surprises.

Confused?  You might be…

Before coming onto the practical implications of the Business Plan there is one final observation I can’t help but mention: reading the Business Plan can be slightly confusing.

Ostensibly, the Business Plan is built around three themes which it calls focuses – ‘Focus 1’, ‘Focus 2’ etc.  However, another section of the Business Plan called ‘Our Focus’ lists 8 completely different ‘focuses’.  Slightly strange.

They then talk about prioritising their work. You might think ‘priorities’ and ‘focuses’ were all closely related. However, this is a completely different list of 4 priorities, separate to the 3 focus areas and 8 focuses. 

And, of course, there is thematic overlap between the 3 focus areas, the 8 focuses and the 4 priorities.

Now we have cleared that up, we get to another slight comprehension challenge. 

The 3 focus areas are all broken down into ‘commitments’ and the FCA has 13 commitments in its strategy all supported by metrics it tracks.  So far, so good.

However, just to keep things simple, when the FCA has ‘additional resources available’ it has 4 additional commitments. Which sounds like a commitment to maybe being committed… if resources allow.

Confused?   Well, maybe just a little.

Finally, what should you do about it?

There are a couple of things compliance officers should do about the Business Plan, and the other regulatory policy documents (as identified  above). 

Firstly, the easy thing. Review them all and make sure that your risk focus matches the FCA’s.  Ensure your deployment of resources is risk based, and your compliance monitoring programme, thematic reviews and other routine compliance assurance activities, match the FCA’s focus and priorities.  Brief your Board and ExCo. Make sure the whole company is aligned in where your regulatory risk lies and how you mitigate it. Your Board will be very relieved to hear you link your activity to the risks the FCA have defined. Assess your resourcing to deliver this and identify shortfalls accordingly.

There is also a much more difficult activity to consider, but potentially with a higher pay off, that compliance and risk teams need to start considering.

Let’s return to the FCA’s data-led strategy and what it means – both generally and for your firm specifically.

Firstly, let’s triangulate 3 different aspects:

• The FCA is data-led, meaning it is now analysing data more effectively, to enable it to take early interventions against the firms it regulates.
• In its metrics, the FCA publishes a list of the KPIs linked to its objectives and commitments. It uses these to trigger this interventionist activity.
• Some of those metrics will be directly informed by the data provided by firms, including yours, via regulatory reporting. 

What I believe this means for compliance teams is that the time has come to map data provided to the FCA (within regulatory reporting) back to the KPIs the FCA tracks.  And from there you can ensure you track and report equivalent KPIs internally, that match the FCA’s own KPIs, specifically in those areas that affect your business. You might also track your distance from the formal target. All of this would make a very informative regulatory risk heat map.

By doing this you can establish how close you are likely to be to breaching a risk threshold and thereby being identified for investigation. You can also identify internal changes to reduce the likelihood of such breaches.

That is a tougher project but will be highly rewarding for those that execute it.

To assist firms with this activity, we have developed a spreadsheet which lists the FCA’s metrics in tabular form and offers a number of filters to help you sort through them. Please  click here  to access the FCA Metrics Report from My Compliance Centre.

For more information, please contact Ben Mason, Founder, My Compliance Centre at  [email protected]

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A Cunning Plan? What does the FCA’s Business Plan 2023-24 mean for Payments Firms?

Posted on: 19 April 2023

Written by: John Burns

Blackadder – “I've got a plan so cunning, you could put a tail on it and call it a weasel!”

The similarities between Nikhil Rathi, Chief Executive of the FCA and Edmund Blackadder are, perhaps, not obvious, but the FCA does indeed have a plan for the forthcoming 12 month. Firms falling within its regulatory perimeter should take notice, as it spells out the priorities and areas of focus which will guide its activities over that period.

On 5 April the FCA published on its website the FCA Business Plan 2023/24 . As has become glaringly evident over the past 3 years, the Payments sector is now right in the FCA’s sights and is seen as, at best, an area with potential for significant customer detriment.

It is therefore important for firms in the sector to understand the FCA’s plans and the direction of travel, in order to be prepared.

The plan spells out a number of areas of focus. These include:

Reducing and preventing serious harm

The FCA say that its aim is to protect consumers from fraud and mistreatment. Clearly the Consumer Duty is a major element of this, but there are a number of other points worthy of note in the plan.

Reiterating the message that the FCA has been sending, the plan says that the regulator will “ continue to be less risk averse and take more robust action, sending a strong message of the action we take when we identify harm ”. 

There is also a comment that “ Consumers and market participants have confidence that financial services firms which fail to meet the Threshold Conditions and/or should otherwise not be regulated, are identified and cancelled quickly .” and that the regulator’s key activities will include “ Continue to identify and cancel firms that do not meet Threshold Conditions quickly and at scale, removing them from the regulated market.” and “Expand the types of breaches of Threshold Conditions that we take action against.”

We have already seen action by the FCA against firms where it has been identified that Threshold Conditions are not being met, and this statement that quick cancellation is seen as the remedy should act as a prompt to Boards to be constantly monitoring that Threshold Conditions are being met, and to be able to prove to the FCA that this is the case. 

Under the heading of “ Reducing harm from firm failure ” the FCA focuses on financial resilience, which from a Payments and E-money sector perspective means safeguarding, stress testing and wind-down planning will all come under increasing scrutiny. Any firm which has not had a detailed review of these areas would be well advised to do so quickly and regularly.

The FCA say that they will “ Introduce a new regulatory return requiring 20,000 solo regulated financial services firms to provide a baseline level of information about their financial resilience. This is a key step in embedding a data-led approach that helps us better identify financial and other stresses which may cause firm failure .” This will provide them with the data to start taking action where they feel there is a risk of failure. Speaking with my colleagues in our Prudential Team, we think it likely that some version of the Internal Capital Adequacy and Risk Assessment (ICARA) requirement on Investment firms will be introduced for payments and E-money firms.

There is a chilling threat to firms who are not seen by the FCA as being financially resilient in the statement that the FCA will “ Use our powers more assertively to start relevant insolvency processes to reduce harm from firms.”

Reducing and preventing financial crime is, of course, a perennial area of focus for the FCA and the business plan says that the regulator will “ Increase the volume of our proactive assessments of firms’ anti-money laundering systems and controls. ” It also says that the FCA will “ Build on our approach for effectively supervising the anti-fraud systems and controls of regulated firms through undertaking further assessments to evaluate how they are protecting consumers from fraud and that firms are not being used as enablers of fraud.” Reviewing your anti-fraud systems and controls is therefore something that firms should be doing regularly.

Finally under this heading the FCA say “ With additional funding we will increase the use of our powers to disrupt, pursue and sanction those committing financial crime, fraudsters and their enablers”.  Payments firms can sometimes be used by fraudsters or money launderers, and any firm which does not have in place appropriate systems and controls is likely to be seen by the FCA as an “enabler” and therefore open to regulatory sanction. Firms should also take note of the new offence being created by the government, “Failure to prevent fraud” offence, under which an organisation will be liable where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company bosses ordered or knew about the fraud.

As mentioned above (and frequently in other articles) the Consumer Duty, which comes into force on 31 July, is a core focus of the FCA. The business plan deals with this under the heading “ Putting consumer needs first.”

The plan says that the additional funding assigned to Consumer Duty will allow the FCA to undertake sector-specific supervisory work , focused on the priorities detailed in the Sector and Portfolio letters. Payments and E-money firms can therefore expect contact from the Payment Market Intervention team at the FCA on Consumer Duty implementation.

As well as this, the FCA say “ The additional funding will also allow us to create an additional Interventions team within Enforcement.  This function will be ready from day one of the duty coming into force to enable rapid action where immediate consumer harm is detected.  Further investigative resource will also ensure swifter investigation of any potentially serious misconduct discovered.”

Firms where consumer harm is detected can therefore expect swift action from the FCA’s Enforcement Department. Not being ready by 31 July will not be acceptable.

The Payments sector is caught by the FCA’s Operational Resilience requirements, and the business plan makes clear that the FCA will be scaling up its efforts to deal with firms who cannot meet its new standards. It is also developing new rules to address the systemic risk presented by critical third parties.

The plan says that the FCA will “ Assess how operationally resilient firms are to remaining within their impact tolerances – the maximum tolerable amount of disruption to an important business service – ahead of the 31 March 2025 deadline in our operational resilience policy (PS21/3). After this point, all relevant firms will need to show they can remain within these tolerances .” Reviewing and making sure your Operational Resilience plans and testing are up to date and meet the FCA’s requirements is another item that should be on the schedule of compliance tasks.

In summary, the plan may not be “so cunning, you could put a tail on it and call it a weasel” but it is no less important for that. For payments and E-money firms it is a reinforcement of the message that the FCA is increasingly active and less accepting of errors and omissions from firms in the sector. The increased resource that the regulator has at its disposal and its perception of payments as being a problem area means that firms must assume that they will receive an information request from the FCA at any time, and that they must be ready and able to evidence that they are compliant, or risk enforcement action, potentially leading to withdrawal of authorisation, or even insolvency.

Our specialist teams in Payments, Prudential and Financial Crime can help you assess where you stand now in relation to the FCA’s expectations, and support you in addressing any shortcomings.

If you’d like to have a chat about what this means for your firm, please contact us and we will get back to you.

John is one of the UK’s foremost compliance experts in payment services, and he is Senior Advisor in our Payment Services Practice.

Related resources

Annex I Gap Analysis

Whistleblowing Matters

Cryptoasset firms, partner firms and compliance with the financial promotion regime.

The FCA publishes additional guidance on good and bad practices for the implementation of the ‘back end’ cryptoasset financial promotions rules.